One alternative is to fight disputed debts. If a creditor sues you for a payment on a debt you don’t believe is justified, you may be able to defend against the creditor’s action. There may sometimes be a real dispute about whether a debt is owed. For example, a home improvement contractor may arrange a mortgage loan to pay for the job but then do shoddy work or not complete the job. Similarly, there may be misrepresentations in a transaction to buy a car or to finance some other major purchase. In such cases, the solution may be to fight the debt in court.
If a debt is not disputed, some of the other alternatives to bankruptcy include:
- Working out informal payment agreements with creditors. If your debts are relatively small, you may be able to enter into agreements with your creditors and avoid a bankruptcy proceeding. Nonprofit credit counseling agencies can usually assist in working out such arrangements.
- Refinancing debts. A debtor may be able to arrange a debt consolidation loan that will allow him or her to pay bills as they fall due. Although a debt consolidation loan does not eliminate any of your debt, the new loan may have a longer maturity and be at a lower interest rate than the individual debts. However, debtors should be very wary of consolidating unsecured debts such as credit card debts into a mortgage loan, because in doing so they will usually transform debts that can be eliminated in bankruptcy into debts that cannot be eliminated.
- Financial assistance under state law. Often states have programs that will help you with utility or mortgage bills. Before filing for bankruptcy, you should investigate these programs.